Tesla Inc (TSLA) Stock Will Make You a Crash Test Dummy

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Tesla Inc (NASDAQ: TSLA ) is back to where it started, kinda sorta, but I think it's time to apply the brakes on TSLA stock. No, I haven't suddenly become a bear on Tesla - but I think the best long opportunities are about to dry out, and I think the longs' next chance is a bit farther down the road.

Source: OnInnovation via Flickr

As I said three weeks ago, I don't consider myself part of the Tesla cult , but I have been consistently bullish on TSLA this year. And not to honk my own horn, but the insights have provided overall, stellar risk-adjusted returns compared to simply buying and holding shares.

Now, a friendly albeit bumpy ride to all-time highs has run its course.

The recommendation to tap the brakes on TSLA stock comes in front of the much-anticipated roll-out of the EV maker's Model 3, whose launch date has been pushed to sometime in July, from a July 1 launch when I penned my last article.

But wait! Tesla's Elon Musk tweeted Friday morning prior to the open there will be news this weekend. Prior, I discussed the Model 3 event acting as a "sell the news" scenario if shares rallied straight into the release of the latest product launch. Could this weekend actually prove to be the technical trigger?

Based on what's transpired over the last couple weeks, I prefer not to be a willing dummy. I like and respect what Tesla has been able to achieve, but there's still a long road ahead, and much better opportunities to go long TSLA stock.

Tesla Weekly Chart

Click to Enlarge As discussed back in early June, a bullish trend in Tesla stock still looked promising enough for a limited-risk position designed for additional upside in shares. And for all intents and purposes, that scenario played out.

TSLA shares didn't quite manage to reach $400, but a high of $387 just 3% shy of the century mark and overbought stochastics condition in tow, is sufficient evidence that a conservative measured move out of the inverse head-and-shoulders base has played itself out and signals a topping liability.

Where to do from here?

I expect a larger corrective move over the coming days and weeks.

At a minimum, 7% to 10% is generally viewed as constructive, and so far, Tesla has logged a decline of around 8.5%. However, given the massive run from $180 to $386 over the last several months, price declines of up to 30% would be considered healthy - and par for a growth situation like Tesla stock.

How to Trade TSLA Stock

If you believe like me that a larger correction is in the works, but you ultimately like the idea of buying Tesla on opportunistic price weakness, a below-market put credit spread is an attractive idea.

Reviewing Tesla's options in Friday's early going, I like the Jul $340/$335 put spread at $1. With this pricing in mind, the vertical trader will be able to capture the credit if TSLA stock is above $340 at expiration. That allows for a buffer of nearly 7% and a margin of safety or breakeven of $339.

And what if shares of Tesla crash or move on to a "healthier" or deeper correction? There is $4 at risk if TSLA plows below $335. But if you're in Tesla's cult - or you're just a more value-centric bull like myself - a small ding of just more than 1% in the vertical spread also means the opportunity to buy shares.

If you do that , you're no dummy.

Investment accounts under Christopher Tyler's management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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